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Abstract

This paper critically evaluates Robert Barro’s rational expectations hypothesis within the aggregate demand and supply framework and contrasts it with John Smithin’s Post-Keynesian reinterpretation of macroeconomic dynamics. While Barro’s integration of rational expectations into macroeconomic modeling has shaped modern economic thought, it relies on assumptions of perfect information, flexible prices, and market-clearing behavior that often do not hold in practice. Empirical evidence and real-world frictions—such as price stickiness, wage rigidity, and market imperfections—challenge the policy-neutrality predictions of Barro’s model. In contrast, John Smithin’s contributions emphasize effective demand, structural disequilibrium, and open-economy complexities, offering a more realistic lens for analyzing macroeconomic fluctuations. Drawing on Smithin’s key publications and related literature, this study advocates for an integrated macroeconomic approach that accounts for institutional contexts, behavioral heterogeneity, and global interdependencies. The paper concludes that Post-Keynesian frameworks provide a more effective foundation for understanding economic instability and guiding policy interventions in real-world economies.